20 June 2019 - Events
Using a company's ‘centre of main interest' as a basis
The Singapore High Court had, in a recent landmark decision, addressed the issue of the recognition of a foreign liquidator from a jurisdiction other than the place of incorporation of the wound up company. In particular, the Court approved the use of a company's ‘centre of main interest' (COMI) as a basis for the recognition of the foreign liquidator in Singapore.
The Case in point In Re Opti-Medix Ltd (in liquidation) and another matter  SGHC 108, ex parte applications were made to the Singapore Court by a foreign liquidator (the Applicant) who was appointed by the Tokyo District Court as the Bankruptcy Trustee for two companies, namely Medical Trend Limited (MTL) and Opti-Medix Limited (OPL), which were incorporated in the British Virgin Islands. The foreign liquidator's application to exercise his powers under the Japanese bankruptcy orders to ascertain, administer and dispose of the Companies' assets in Singapore was granted by the Court notwithstanding the fact that the foreign liquidation proceedings had not been instituted in the place of incorporation of the Companies.
The Companies were incorporated in BVI and carried on the business of factoring receivables from medical institutions in Japan, with such factoring having been funded by non-recourse notes issued by the Companies. Though these non-recourse notes were marketed solely in Japan, they were governed by Singapore law. As a result of their inability to meet payments due under their non-recourse notes, the Companies were unable to sustain their businesses and eventually insolvency proceedings were instituted against them in the Tokyo District Court and the Applicant was appointed in Japan as the Bankruptcy Trustee of the Companies.
The majority of the Companies' creditors were Japanese with the minority being Singapore creditors. MTL had an unsecured debt of about ¥5.6 billion. It owed two Singapore creditors about ¥1.6 million and ¥9.6 million respectively. OPM had a debt of about ¥13 billion and owed one Singapore creditor an unknown amount for service fees.
Foreign liquidator appointed in Japan, companies incorporated in BVI, foreign liquidator seeking recognition of powers in Singapore
The crux of the ex parte applications concerned the recognition of the Applicant's powers as Bankruptcy Trustee (which had been granted by the Tokyo District Court) in Singapore, in respect of the administration and disposition of the Companies' assets in Singapore.
I. GROUNDS OF APPLICATION
It was submitted by the Applicant that the Singapore Court should recognise his appointment as Bankruptcy Trustee over the Companies and allow him to ascertain, administer and dispose of the Companies' assets in Singapore. It was also asserted that there would be no prejudice to the Singapore creditors as the notes were sold only in Japan and any debt in Singapore was incurred only for administrative services. Moreover, no one had contacted the Applicant's solicitors despite notice of the liquidation of the Companies having been advertised in Singapore. There were also no competing claims made by liquidators appointed by other jurisdictions.
The Applicant argued for the Japanese Court to be considered as the principal court of liquidation (even though the Companies were incorporated in the BVI) as the Companies had no operations in the BVI, making liquidation in their place of incorporation unlikely. It was also submitted that there was a growing acceptance of the idea of locating the primary place of insolvency proceedings at the COMI of the company concerned and that in the present case, the Companies' COMI was undoubtedly in Japan and forcing the Companies' creditors to commence liquidation in the BVI would only be wasting resources.
The Applicant also highlighted that an undertaking had been given to pay all preferential debts and other debts in Singapore before remitting any of the Companies' monies out of Singapore.
II. THE JUDGMENT
Upon consideration of the Applicant's grounds for the application, the Court allowed the application and granted recognition of the bankruptcy orders of the Tokyo District Court and of the appointment of the Applicant as the Bankruptcy Trustee of the Companies in Singapore. The Court also ordered that all moveable assets and records of the Companies be vested in the Applicant and that he be empowered to collect and recover those assets and records. This would entitle the Applicant to stop payments and request information in respect of accounts held in the names of the Companies.
In considering whether liquidation proceedings that were commenced in a jurisdiction other than the place of a company's incorporation should be recognised in Singapore, the Court noted that there was a general movement away from the traditional, territorial focus on the interests of local creditors towards recognition of the need for there to be universal cooperation between jurisdictions in respect of cross-border insolvencies.
The Court was also of the opinion that the Universalist approach (whereby one court would be the principle court for the liquidation of a company while other courts assisted in carrying out the administration of the liquidation in their respective countries) was the most conductive to the orderly conduct of business and resolution of business failures across various jurisdictions. However, it also cautioned that the mere fact that a company is in liquidation in a particular country does not by itself give rise to a basis to recognise that liquidation in Singapore and that something more has to be shown. In this case, the fact that the jurisdiction in question, i.e. Japan, was where the bulk of the business and transactions of the Companies occurred was found to be sufficient for the Court to recognise the appointment of the Applicant in Singapore.
The Court was of the view that though it is logical to recognise a liquidator that is appointed by a court of a company's place of incorporation, there is also a possibility that a company's place of incorporation may be an accident of many factors and may be far removed from its actual place of business. As such, it would be more practical to look at a company's COMI in determining which jurisdiction should be a company's principal court of liquidation as the COMI will likely be the place where the bulk of its business and transactions is carried out, and for that reason, provides a strong connecting factor to the courts there.
In the present case, the Court noted that Japan was the sole place where the Companies' actual business was carried out and that Singapore was primarily a centre for managing the Companies' funds which were received in Japan. As such, the Companies' COMI was Japan even though Japan was not their place of incorporation.
The Court also emphasised that even if it had not adopted the common law COMI test as a basis for the recognition of the insolvency proceedings commenced against the Companies in the Tokyo District Court, the recognition of the Tokyo order could also be justified on practical grounds. The Court was of the view that in instances where the interests of the local forum are not adversely affected by a foreign order, the local court should lean towards recognition as a matter of comity and also business practicality. As the interests of the Singapore creditors were protected by the Applicant's undertaking to pay all preferential debts and other debts in Singapore before remitting any monies out of Singapore, and as there were no competing jurisdictions which were interested in the liquidation of the Companies, the Court found that there was no reason why it should hinder the orderly dissolution of the Companies.
What does this mean?
Prior to this case, there was no written decision in Singapore on the recognition of foreign liquidators or bankruptcy trustees from jurisdictions other than the place of incorporation of the companies concerned. Following this decision, it is now recognised in Singapore that a company's centre of main interest may be used as a basis for the recognition of a foreign liquidator in Singapore, even if the appointment of the foreign liquidator had been made in a jurisdiction other than the company's place of incorporation.